Intel’s CEO shift looming — with no clarity

Commentary: Chip giant faces tough challenge in picking new leader

Paul Otellini, president and CEO of Intel Corporation, is expected to step down next month. Replacing him will not be easy.

SAN FRANCISCO (MarketWatch) — As Intel Corp.’s long-suffering investors gear up for the company’s first-quarter report next week, the chip giant has truly found itself in a pickle as it seeks a new CEO to run a business that is rapidly shifting under its feet.

The real deadline hits on May 16, when Intel
INTC, -1.79%
hosts its annual meeting, which will also be the last day for current chief Paul Otellini.

But the CEO question is likely to be a key area of interest in next week’s earnings report and conference call. While the stock has picked up more than 6% this week, Intel’s shares are down more than 18% over the last 12 months — significantly underperforming the S&P 500
SPX, -1.54%
.

In a big change from the past, Otellini does not have a successor waiting in the wings, a first for Intel in its nearly 45-year history.

Otellini, who does not turn 65 until 2015, surprised investors on Nov. 19, with the news that he was stepping down this May — two years before the company’s mandatory retirement age.

Another surprise was the fact that Intel, which has always had an orderly CEO succession plan, planned to include outsiders in its search for a new leader. It was seen as an admission that the company needs to find a CEO who can shepherd the company into the mobile device era, where it has been a laggard.

Now, the search faces a deadline with Otellini’s retirement on the near horizon. So far, progress has been kept quiet, with not nearly as much speculation, leaks or rumors that typically accompany these kind of high-profile executive searches.

Chuck Mulloy, an Intel spokesman said there was “nothing new in the search,” to report on Wednesday. “We are still hopeful that we will get it done by the time of the shareholder meeting.”

Unless Intel makes its actual CEO announcement as part of its earnings report, the company may say very little about the search. But the topic will no doubt weigh heavily on the minds of investors as the company reports what is expected to be its third consecutive quarter of revenue declines.

“They will be asked on the call and they won’t answer,” said Hans Mosesmann, an analyst at Raymond James, in an email. “It’s amazing a company of this quality doesn’t have a clear succession plan.”

On Wednesday, RBC Capital Markets analyst Doug Freedman weighed in with a lengthy note on the topic, where he discussed some of the rumored candidates and explained why the company may be taking longer than investors had expected to find a new CEO.

“When anointing a CEO this time around, a deep understanding of the PC market no longer gives a candidate an edge, which gave Otellini an advantage in succeeding Craig Barrett in 2005,” Freeman wrote. “The next leader could depend on who is best suited to grow not one, but all, areas of Intel’s efforts in mobile, data center, software and foundry.”

Reuters

Sanjay Jha, former CEO of Motorola Mobility, is one rumored candidate for Intel’s CEO job.

Who that candidate will be is the big question in Silicon Valley.

Rob Enderle, principal analyst at the Enderle Group, said at the Intel alumni lunches he has attended in the past few months, “it has been a topic” of discussion, but no one seems to have any solid information.

Last month, Piper Jaffray analyst Gus Richard wrote in a note that Intel had narrowed its choice down to two internal executives and one external candidate. CNET then reported that the company had narrowed the search down to two Intel executive vice presidents, Brian Krzanich, who is also the company’s chief operating officer, and David “Dadi” Perlmutter, the head of the Intel architecture group.

The lead external candidate, CNET reported, was Sanjay Jha, former CEO of Motorola Mobilty Inc., which has been acquired by Google Inc.
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Jha previously was the second-highest-ranking executive at Qualcomm Inc.
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and has the mobile background that Intel needs, but not necessarily all the chops for the current core PC business.

Freedman’s note on Wednesday includes Jha, Krzanich and Perlmutter as his potential candidates, amid a few others. He also floated the unusual idea of Warren East, the CEO of Arm Holdings Plc,
US:ARMH
the company that has become Intel’s nemesis over the last couple of years, since its chip designs are now in nearly every smartphone and tablet on the market.

Otellini spent his entire business career, starting in 1974, at Intel after getting his MBA at U.C. Berkeley. Initially, he was an unusual choice for CEO because of his sales and marketing background, but his experience leading the PC business was rewarded. He was the first non-engineer CEO and under his watch, Intel continued its dominance in PCs and servers but missed the boat in smartphones and tablets.

Whether or not Intel is stymied in its search is a big question for investors.

Christopher Rolland, an analyst at FBR Capital Markets, believes that Intel is just trying to find the best candidate for the job. “Underneath it all, it is such a great company — PC issues aside — I think they are just taking their time because they want to get it right,” Rolland said. “They are looking for a CEO with a great vision into mobile, data center, networking and even perhaps foundry.”

It’s also feasible that if the company does not have a candidate by the time Otellini retires next month, current chairman and longtime Intel executive Andy Bryant could step in as interim CEO, according to the Oregonian.

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